FINRA Goes After "No Class Action" Waivers, Starting With Schwab

Thursday, February 02, 2012 09:06
FINRA Goes After

Tags: Schwab

Brokerage account paperwork has become notorious for asking clients to sign away their legal rights if anything goes wrong. Schwab seems to have taken that policy one step too far for the regulators.

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In October, Schwab rolled out new customer agreements that unilaterally eliminated the prospect of class action lawsuits or any consolidated arbitration.


FINRA argues that the new terms go over the line and that every new account Schwab opens makes the situation worse.


Schwab claims that it's within its rights under recent interpretations of the Federal Arbitration Act.


Setting this case up in terms of federal law versus FINRA rules opens the way for a test of FINRA's authority.


We know that the courts consider FINRA supreme and unquestionable in all regulatory matters, even the most tangentially connected to its work.


In a case where the courts themselves seem to contradict the regulator, which will come out on top?


In any event, this is one of those cases where FINRA is clearly protecting the retail investor. If the regulator wins, Schwab's clients get to keep their power to defend themselves. If Schwab wins, the regulator loses -- but so do the customers.



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